Stock market didn't seem to care at least. Was up 168 points today.
The economy contracted sharply in the first quarter of the year as businesses scaled back on investments and cut their stockpiles of unsold goods, the government reported on Wednesday. But the numbers suggested that the worst of the recession may be fading as the government’s stimulus filters into the economy.
The gross domestic product shrank at an annual rate of 6.1 percent from January through March after a 6.3 percent decline in the fourth quarter of 2008. Not since 1958 have Americans experienced such a sharp contraction over six months.
But on Wall Street, investors barely flinched at the worse-than-expected decline in economic output. Stock markets rallied 2 percent in midday trading as two big media and entertainment companies beat earnings expectations and analysts upgraded their outlook on bank profits.
Although economists expect the economy to shrink again in the current quarter, they said it would do so at a slower pace and level off in the second half of the year as one of the longest downturns since the 1930’s begins to lift.
“The 6.1 percent decline in the first quarter was very bad,” said Mark Zandi, chief economist at Moody’s Economy.com. “But the situation is not nearly as dark as this number suggests. The details suggest a more stable economy this summer.”
One of the bright spots in the numbers was a 2.2 percent increase in consumer spending, which accounts for some 70 percent of economic activity. After two quarters of sharp declines, economists said consumer spending had stabilized, thanks in part to lower energy prices and higher-than-normal tax refunds, which have put more money in people’s pockets.
And economists said that government spending, which declined 4 percent, would probably turn around and buoy the broader economy for the rest of the year as infrastructure projects from the $787 billion stimulus plan get underway.
“This reads like the final blow-off quarter of the recession,” said Mickey Levy, chief economist at Bank of America. “Things are going to begin to stabilize.” Other gauges of the economy are beginning to show signs of healing.
Credit markets that spiraled out of control late last year are improving, and retail sales and orders by manufacturers are no longer posting record declines. And on Tuesday, a closely watched gauge of home prices in the United States leveled off by a hair, the first time in 16 months that the slide in housing prices did not accelerate.
“We’re still declining, but we can see the forces that will get us out of this,” said Markus Schomer, global economic strategist at A.I.G. Investments. “We still have this massive fiscal stimulus coming. There are a lot of positives that are coming over the next six to 12 months that will drive the recovery.”
Falling inventories and a plunge in business investment contributed to much of the overall decline in the nation’s economic output in the first quarter.
Companies cut their capital investment at an annual rate of 38 percent, and cut their inventories at a pace of $103.7 billion as they rushed to reduce their costs. Business investment in software and equipment declined by an annualized 33.8 percent, and investment in new structures was down 44.2 percent.
“It was just a complete free-fall in investment activity,” said Joseph LaVorgna, chief United States economist at Deutsche Bank.
But even if the economy is beginning to reach a bottom, millions of Americans are unlikely to see their fortunes improve any time soon.
Economists warned that job losses are likely to continue through the rest of the year. The current unemployment rate of 8.5 percent is expected to rise as high as 10 percent as businesses reduce their costs and put off hiring, buckling down for more bad times.
Already, more than 5 million workers have lost their jobs since the recession began in December 2007. Businesses that began to cut costs with furloughs and pay freezes are laying off workers in large numbers. Earlier this week, General Motors announced it would cut another 21,000 jobs in the United States.
President Obama made the economy the centerpiece of his campaign for the White House, and he has said that his stimulus package would save or create three million to four million jobs over the next two years. Economists said the coming months would begin to put those promises to the test.
“‘I don’t think anyone’s going to be thrilled,” said Michael Moran, chief economist at Daiwa Securities. “The unemployment rate is going to continue rising, and I think this soft labor market is going to continue to give a disappointing tone to the economy.”
We had two bags of grass, seventy-five pellets of mescaline, five sheets of high-powered blotter acid, a salt shaker half full of cocaine, a whole galaxy of multi-colored uppers, downers, screamers, laughers…Also a quart of tequila, a quart of rum, a case of beer, a pint of raw ether and two dozen amyls. The only thing that really worried me was the ether. There is nothing in the world more helpless and irresponsible and depraved than a man in the depths of an ether binge. –Raoul Duke
It is hard to shed anything but crocodile tears over White House speechwriter Patrick Buchanan's tragic analysis of the Nixon debacle. "It's like Sisyphus," he said. "We rolled the rock all the way up the mountain...and it rolled right back down on us...." Neither Sisyphus nor the commander of the Light Brigade nor Pat Buchanan had the time or any real inclination to question what they were doing...a martyr, to the bitter end, to a "flawed" cause and a narrow, atavistic concept of conservative politics that has done more damage to itself and the country in less than six years than its liberal enemies could have done in two or three decades. -Hunter S. Thompson
